Prepare the service revenue sales budget for 2017 by

Question

1. Thome and Crede, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.

Department	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Auditing	2,300	1,600	2,000	2,400
Tax	3,000	2,200	2,000	2,500
Consulting	1,500	1,500	1,500	1,500

Average hourly billing rates are auditing $80, tax $90, and consulting $110.

Instructions

Prepare the service revenue (sales) budget for 2017 by listing the departments and show­ing for each quarter and the year in total, billable hours, billable rate, and total revenue.

2. Deitz Corporation is projecting a cash balance of $30,000 in its December 31, 2016, balance sheet. Deitz's schedule of expected collections from customers for the first quarter of 2017 shows total collections of $185,000. The schedule of expected payments for direct
materials for the first quarter of 2017 shows total payments of $43,000. Other information gathered for the first quarter of 2017 is sale of equipment $3,000, direct labor $70,000, manufacturing overhead $35,000, selling and administrative expenses $45,000, and purchase of securities $14,000. Deitz wants to maintain a balance of at least $25,000 cash at the end of each quarter.

Instructions

Prepare a cash budget for the first quarter.

3. The budget committee of Suppar Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2017.

a. Sales for May are expected to be $800,000. Sales in June and July are expected to be higher than the preceding month.

b. Cost of goods sold is expected to be 75% of sales.

c. Company policy is to maintain ending merchandise inventory at 10% of the following month's cost of goods sold.

d. Operating expenses are estimated to be as follows:

Sales salaries	$35,000 per month
Advertising	6% of monthly sales
Delivery expense	2% of monthly sales
Sales commissions	5% of monthly sales
Rent expense	$5,000 per month
Depreciation	$800 per month
Utilities	$600 per month
Insurance	$500 per month

e. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income before income taxes.

Instructions

(a) Prepare the merchandise purchases budget for each month in columnar font

(b) Prepare budgeted multiple-step income statements for each month in columnar form. Show in the statements the details of cost of goods sold.

4. Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.

Indirect labor	$1.00
Indirect materials	0.70
Utilities	0.40

Fixed overhead costs per month are supervision $4,000, depreciation $1,200, and property taxes $800. The company believes it will normally operate in a range of 7,000-10,000 direct labor hours per month.

Instructions

Prepare a monthly manufacturing overhead flexible budget for 2017 for the expected range of activity, using increments of 1,000 direct labor hours.

5. Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $170,000 to $200,000. Variable costs and their percentage rela­tionship to sales are sales commissions 6%, advertising 4%, traveling 3%, and delivery 2%. Fixed selling expenses will consist of sales salaries $35,000, depreciation on delivery equipment $7,000, and insurance on delivery equipment $1,000.

Instructions

Prepare a monthly flexible budget for each $10,000 increment of sales within the relevant range for the year ending December 31, 2017.

6. The South Division of Wiig Company reported the following data for the current yean

Sales	$3,000,000
Variable costs	1,950,000
Controllable fixed costs	600,000
Average operating assets	5,000,000

Top management is unhappy with the investment center's return on investment (ROI). It asks the manager of the South Division to submit plans to improve ROI in the next year.

The manager believes it is feasible to consider the following independent courses of action.

1. Increase sales by $300,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $150,000.

3. Reduce average operating assets by 4%.

Instructions

(a) Compute the return on investment (ROI) for the current year.

(b) Using the ROI formula, compute the ROI under each of the proposed comes of action. (Round to one decimal.)

7. Optimus Company manufactures a variety of tools and industrial equipment The company operates through three divisions. Each division is an investment center. Operat­ing data for the Home Division for the year ended December 31, 2017, and relevant budget data are as follows.

 

	Actual	Comparison with Budget
Sales	$1,400,000	$100,000 favorable
Variable cost of goods sold	665,000	45,000 unfavorable
Variable selling and administrative expenses	125,00	25,000 unfavorable On target
Controllable fixed cost of goods sold	170,000	On target
Controllable fixed selling and administrative expenses	80,000	On target

Average operating assets for the year for the Home Division were $2,000,000 which was also the budgeted amount.

Instructions

(a) Prepare a responsibility report (in thousands of dollars) for the Home Division.

(b) Evaluate the manager's performance. Which items will likely be investigated by top management?

(c) Compute the expected ROI in 2017 for the Home Division, assuming the following independent changes to actual data.

(1) Variable cost of goods sold is decreased by 5%.

(2) Average operating assets are decreased by 10%.

(3) Sales are increased by $200,000, and this increase is expected to increase contri­bution margin by $80,000.